Bosnia-Herzegovina Country Risk Report Q4 2018
Political risks are rising in the run-up to the October 7 general election, with major parties hardening their rhetoric to aggravate ethno-nationlist concerns and entrench existing divisions within society.
Failure to reform the electoral law means there is a growing threat of a crisis in forming a government after October's vote, a scenario that would effectively paralyse the policymaking process.
The recent unlocking of IMF and other international credit lines should support badly-needed investment in infrastructure and provide a moderate boost to economic growth over the coming two years.
Long-term economic development will continue to be restricted by the country's dysfunctional political system and unstable business environment.Major Forecast Changes
We have lowered our forecast for GDP growth in 2019 to 3.3%, from a previous 3.5%, due to heightened political uncertainty and a weaker external backdrop amid rising risks to global trade.
Deep-rooted political divisions, a rise in ethnic tensions, and weak institutions leave Bosnia vulnerable to external meddling in the forthcoming elections, which would further damage the country's democratic foundations.
A sharp rise in migrant arrivals in 2018 is exposing the limitations of the country's complex political system, while also fuelling political and social tensions.
An escalation of the US-EU trade dispute could damage the export potential of Bosnia's steel industry, which is a key contributor to trade, jobs and output.
A failure to enact reforms or unilateral pre-election spending hikes could lead to another suspension of the EUR550mn agreement with the IMF, creating financ-ing problems for both entity governments and steering money away from growth-inducing capital spending.